What I’m Watching This Week – 26 March 2018

The Markets (as of market close March 23, 2018)

Volatility is the catchword when describing the market lately. Investors had better buckle up for a bumpy ride from here on, at least according to indications from the Chicago Board Options Exchange (Cboe) Volatility Index®, which attempts to provide a forward-looking expectation of price fluctuation in the S&P 500 based on stock option trading. The Cboe Volatility Index® soared from 15.80 on March 16 to 24.87 last Friday. Last week’s market performance was one of the worst in years, with the S&P 500 suffering its biggest drop since the beginning of 2016. The tech-heavy Nasdaq exceeded the losses suffered by the large-cap index, falling over 6.50%. The prospect of escalating trade tensions is also weighing on investors as indicated by last Thursday’s sell-off following the Trump administration’s call for tariffs on Chinese imports.

The price of crude oil (WTI) surged last week, closing at $65.74 per barrel early Friday evening, ahead of the prior week’s closing price of $62.25 per barrel. The price of gold (COMEX) also climbed to $1,352.90 by early Friday evening, rising from the prior week’s price of $1,313.90. The national average retail regular gasoline price increased to $2.598 per gallon on March 19, 2018, $0.039 higher than the prior week’s price and $0.277 more than a year ago.

Market/Index 2017 Close Prior Week As of 3/23 Weekly Change YTD Change
DJIA 24719.22 24946.51 23533.20 -5.67% -4.80%
Nasdaq 6903.39 7481.99 6992.67 -6.54% 1.29%
S&P 500 2673.61 2752.01 2588.26 -5.95% -3.19%
Russell 2000 1535.51 1586.05 1510.08 -4.79% -1.66%
Global Dow 3085.41 3121.33 2988.62 -4.25% -3.14%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.50%-1.75% 25 bps 25 bps
10-year Treasuries 2.41% 2.84% 2.81% -3 bps 40 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • Citing continued strengthening of the labor market and moderate rising of economic activity, the Federal Open Market Committee decided to increase the target range for the federal funds rate 25 basis points to 1.50% to 1.75%. The Committee raised the target range despite inflation that continues to run below the Fed’s target rate of 2.0%. Two more rate hikes remain likely during the remainder of 2018.
  • Sales of existing homes picked up the pace in February following two consecutive monthly declines. Existing home sales grew 3.0% for the month, and are now 1.1% above a year ago. The median existing-home price expanded for the 72nd straight month in February, increasing to $241,700, which is up 5.9% from February 2017 ($228,200). Helping drive sales was an increase in existing home inventory, which rose 4.6% (still 8.1% lower than a year ago). There is a 3.4-month supply of unsold inventory at the current sales pace, compared to a 3.8-month supply in January. Despite surging prices and low inventories, the uptick in sales of existing homes is likely attributable to a healthy economy.
  • New home sales slipped in February, down 0.6% from their January pace. Nevertheless, sales are still 0.5% ahead of their February 2017 estimate. The median sales price of new houses sold in February 2018 was $326,800. The average sales price was $376,700. Inventory of new homes for sale represents a supply of about 5.9 months at the current sales rate.
  • The manufacturing sector bounced back in February as new orders for durable goods increased by 3.1% for the month, compared to January’s 3.5% drop. Excluding transportation, which led the increase (up 7.1%), new orders increased 1.2%. Shipments, inventories, and unfilled orders also increased in February. New orders are up 8.9% year-over-year, while core capital goods (excluding defense and transportation) are up an impressive 8.0% over last year.
  • In the week ended March 17, there were 229,000 initial claims for unemployment insurance, an increase of 3,000 from the previous week’s level. The advance insured unemployment rate remained at 1.3% for the week ended March 10. The advance number of those receiving unemployment insurance benefits during the week ended March 10 was 1,828,000, a decrease of 57,000 from the prior week’s level, which was revised up by 6,000. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

The third and final release for the fourth-quarter gross domestic product is available this week. The annualized rate of growth is expected to remain about 2.5% for the quarter. Also worth noting this week is the international trade in goods report for February. The trade deficit continues to widen, as the cost of imports regularly outpace exports.

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What I’m Watching This Week – 19 March 2018

The Markets (as of market close March 16, 2018)

Market volatility has been fueled by investor concerns of accelerating inflation. However, last week’s Consumer Price Index, retail sales, and Producer Price Index reports showed inflationary trends in February were subdued. Nevertheless, stocks posted weekly losses, possibly resulting from investor fears that the administration’s trade policy could drive up costs for domestic manufacturers. Each of the indexes listed here lost value by last week’s end, led by the large caps of the Dow and S&P 500, followed closely by the Nasdaq, which dropped a little over 1.0%. The small caps of the Russell 2000 and the Global Dow outperformed larger shares. Treasury yields receded as bond prices advanced, possibly reflecting the weak inflation data previously referenced.

The price of crude oil (WTI) rose slightly last week, closing at $62.25 per barrel early Friday evening, ahead of the prior week’s closing price of $62.12 per barrel. The price of gold (COMEX) dipped to $1,313.90 by early Friday evening, down from the prior week’s price of $1,324.00. The national average retail regular gasoline price decreased to $2.559 per gallon on March 12, 2018, $0.001 less than the prior week’s price and $0.236 higher than a year ago.

Market/Index 2017 Close Prior Week As of 3/16 Weekly Change YTD Change
DJIA 24719.22 25335.74 24946.51 -1.54% 0.92%
Nasdaq 6903.39 7560.81 7481.99 -1.04% 8.38%
S&P 500 2673.61 2786.57 2752.01 -1.24% 2.93%
Russell 2000 1535.51 1597.14 1586.05 -0.69% 3.29%
Global Dow 3085.41 3143.16 3121.33 -0.69% 1.16%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.89% 2.84% -5 bps 43 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • The prices consumers paid for goods and services increased 0.2% in February after rising 0.5% in January. Over the last 12 months, consumer prices have risen 2.2%. Consumer prices less food and energy rose 1.8% over the past year. Price pressures over the first two months of the year have yet to appear, contrary to some opinions that inflation is on the rise. The February price increase is primarily attributable to a 0.3% advance in services — prices for goods dipped 0.1%.
  • The prices producers received for goods and services advanced 0.2% in February, and are up 2.8% from February 2017. Producer prices rose 0.4% in January. Prices less food and energy also increased 0.2% for the month and 2.5% for the year.
  • Sales at the retail level fell in February for the third consecutive month, as consumers held off buying automobiles and other big-ticket items. A big tax cut, high consumer confidence in the economy, and a flourishing job market haven’t been enough to send consumers on a spending spree. Retail sales fell 0.1% in February following January’s revised dip of 0.1%. Not since 2012 have retail sales fallen three consecutive months.
  • The federal government deficit expanded to $215.25 billion in February, following a $49 billion surplus the previous month. Government receipts were $155.62 billion, while government outlays totaled $370.87 billion. Through the first five months of the 2018 fiscal year, the deficit sits at $390.97 billion compared to $350.62 billion over the same period last year — an increase of 11.5%.
  • Building permits and housing starts both dipped in February. Permits for all types of privately owned housing units fell 5.7% below the January rate. Single-family building permits slipped only 0.6%. Privately owned housing starts came in 7.0% below the January level, although single-family starts were up 2.9%. A positive from the report came from housing completions, which were 7.8% ahead of January’s figures. Single-family housing completions in February were 3.0% above the January rate.
  • According to the Federal Reserve’s report, industrial production rose 1.1% in February following a decline of 0.3% in January. Manufacturing production increased 1.3%, its largest gain since October. Mining output jumped 4.3%, mostly reflecting strong gains in oil and gas extraction. The index for utilities fell 4.7%, as warmer-than-normal temperatures last month reduced the demand for heating. Capacity utilization for the industrial sector climbed 0.7 percentage point in February to 78.1%, its highest reading since January 2015.
  • Prices paid by the United States for imports continue to advance at a faster pace than the prices for goods sold by U.S. manufacturers to foreign countries. The price index for U.S. imports rose 0.4% in February, the seventh consecutive monthly increase, after advancing 0.8% in January. The last time the index declined on a monthly basis was a 0.2% drop in July 2017. Import prices advanced 3.5% for the 12-month period ended in February, matching the 12-month rise in November. Those were the largest annual increases since the index rose 3.6% for the 12-month period ended April 2017. Export prices increased 0.2% in February after rising 0.8% in January. The last time the index declined on a monthly basis was a 0.1% decrease in June 2017. The price index for U.S. exports increased 3.3% over the past 12 months.
  • The labor sector remained steady, according to the Job Openings and Labor Turnover summary. January saw the number of job openings increase to 6.3 million, over 600,000 more than December. Overall, the number of hires remained relatively the same in January, as did total separations. Job openings increased in professional and business services, transportation, warehousing, and utilities. There were 1.8 million layoffs and discharges in January, with increases in health care and social assistance. Over the 12 months ended in January, hires totaled 65.4 million and separations totaled 63.2 million, yielding a net employment gain of 2.1 million.
  • In the week ended March 10, there were 226,000 initial claims for unemployment insurance, a decrease of 4,000 from the previous week’s level, which was revised down by 1,000. The advance insured unemployment rate remained at 1.3% for the week ended March 3. The advance number of those receiving unemployment insurance benefits during the week ended March 3 was 1,879,000, an increase of 4,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

Of particular interest to investors, the Federal Open Market Committee meets next week, after which it is expected to increase interest rates based on favorable economic conditions and strengthening in the labor sector. Inflationary pressures, which have been subdued, should not factor into the Committee’s decision

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What I’m Watching This Week – 12 March 2018

The Markets (as of market close March 9, 2018)

Last week’s jobs report appears to have quelled investor fears, at least for the time being. Each of the indexes listed here posted impressive weekly gains, led by the tech-heavy Nasdaq and the small-cap Russell 2000, each of which gained over 4.0%. While the February employment figures saw over 300,000 new jobs added, meager wage growth didn’t support accelerating inflation. Last week’s rebound also pushed the major indexes ahead of their 2017 year-end values.

The price of crude oil (WTI) rose last week, closing at $62.12 per barrel early Friday evening, ahead of the prior week’s closing price of $61.45 per barrel. The price of gold (COMEX) climbed to $1,324.00 by early Friday evening, up from the prior week’s price of $1,323.70. The national average retail regular gasoline price increased to $2.560 per gallon on March 5, 2018, $0.012 greater than the prior week’s price and $0.219 higher than a year ago.

Market/Index 2017 Close Prior Week As of 3/9 Weekly Change YTD Change
DJIA 24719.22 24538.06 25335.74 3.25% 2.49%
Nasdaq 6903.39 7257.87 7560.81 4.17% 9.52%
S&P 500 2673.61 2691.25 2786.57 3.54% 4.22%
Russell 2000 1535.51 1533.17 1597.14 4.17% 4.01%
Global Dow 3085.41 3065.64 3143.16 2.53% 1.87%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.86% 2.89% 3 bps 48 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • February saw 313,000 new jobs added, according to the latest employment report from the Bureau of Labor Statistics. Notable job gains occurred in construction (61,000), retail trade (50,000), professional and business services (50,000), and manufacturing (31,000). The unemployment rate remained at 4.1% for the fifth consecutive month. The average workweek for all employees rose by 0.1 hour to 34.5 hours in February. Average hourly earnings for all employees rose by $0.04 to $26.75, following a $0.07 gain in January. Over the year, average hourly earnings have increased by $0.68, or 2.6%. Overall, the number of significant new jobs added is a positive, while wages increased by only 0.1% for the month. The year-over-year gain slowed in February (2.6%) compared to January (2.9%), which was the largest gain since 2009. This should be positive news for investors who shunned the market for fear of rising inflation and interest rates.
  • The non-manufacturing (services) sector of the economy expanded in February, but at a slightly slower pace than the previous month, according to the latest report from the Institute for Supply Management. Supply managers indicated that manufacturing business activity, and new orders expanded, while employment and prices decreased last month. According to the report, the majority of respondents remain positive about business conditions and the economy.
  • A report that could bolster President Trump’s trade policy of increasing tariffs on imports, January’s goods and services trade deficit expanded sharply to $56.6 billion, up $2.7 billion from the $53.9 billion December revised deficit. In January, exports narrowed by $2.7 billion, while imports remained relatively the same, down less than $0.1 billion from December’s imports. Year-over-year, the goods and services deficit increased $7.9 billion, or 16.2%, from January 2017. Exports increased $9.7 billion, or 5.1%. Imports increased $17.6 billion, or 7.4%.
  • In the week ended March 3, there were 231,000 initial claims for unemployment insurance, an increase of 21,000 from the previous week’s level. The advance insured unemployment rate dipped to 1.3% for the week ended February 24. The advance number of those receiving unemployment insurance benefits during the week ended February 24 was 1,870,000, a decrease of 64,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Fears of rising inflation and interest rates have worried investors over the past several weeks. Important inflationary indicators are out this week with the Consumer Price Index, Producer Price Index, and retail sales report. While consumer spending has been modest, prices for consumer goods and services have been rising in a sure sign of inflationary pressures.

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What I’m Watching This Week – 5 March 2018

The Markets (as of market close March 2, 2018)

Trade wars: That was the ominous phrase that spooked many investors toward week’s end, as President Trump announced plans to implement a tariff of 25% on steel imports and 10% on aluminum imports. While no one can say for certain whether such tariffs will actually materialize, Trump’s pronouncements were enough to send stocks tumbling on Thursday and Friday morning, only to recover somewhat by the market’s close Friday afternoon. Unfortunately, the recovery wasn’t enough to stave off weekly losses on all the indexes tracked here, led by the Dow, which closed the week down more than 3%. Year to date, only the Nasdaq and S&P 500 remain in positive territory.

Crude oil (WTI) lost ground last week, closing at $61.45 per barrel early Friday evening, down from the prior week’s closing price of $63.57 per barrel. The price of gold (COMEX) fell to $1,323.70 by early Friday evening, down from the prior week’s price of $1,330.70. The national average retail regular gasoline price decreased for the second week in a row to $2.548 per gallon on February 26, 2018, $0.009 lower than the prior week’s price but $0.234 higher than a year ago.

Market/Index 2017 Close Prior Week As of 3/2 Weekly Change YTD Change
DJIA 24719.22 25309.99 24538.06 -3.05% -0.73%
Nasdaq 6903.39 7337.39 7257.87 -1.08% 5.13%
S&P 500 2673.61 2747.30 2691.25 -2.04% 0.66%
Russell 2000 1535.51 1549.19 1533.17 -1.03% -0.15%
Global Dow 3085.41 3152.06 3065.64 -2.74% -0.64%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.86% 2.86% 0 bps 45 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • The net value of goods and services produced in the United States, as measured by the gross domestic product, increased at an annual rate of 2.5% in the fourth quarter of 2017, according to the second estimate released by the Bureau of Economic Analysis. In the third quarter, the GDP increased by 3.2%. The price index for gross domestic purchases (a measure of price changes in goods and services) increased 2.5% in the fourth quarter, compared with an increase of 1.7% in the third quarter. The personal consumption expenditures price index (which measures the increase in prices paid for personal consumption) increased 2.7%, compared with an increase of 1.5%. Excluding food and energy prices, the PCE price index increased 1.9%, compared with an increase of 1.3%. Consumer spending increased 3.8% compared to the third quarter, as purchases of durable goods jumped 13.8%.
  • Personal (pre-tax) earnings rose 0.4% in January, the same increase as December, according to the latest report from the Bureau of Economic Analysis. After-tax income surged ahead by 0.9%, which matches the largest such gain since December 2012, reflective of the tax-law changes taking effect in January. Despite increased income, consumers didn’t spend significantly more, as personal consumption expenditures rose by only 0.2% over December’s rate. Instead of spending, consumers apparently added their newfound income to savings, which jumped 3.2% in January.
  • Manufacturing output expanded in February, but at a slightly slower pace than January, according to the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™). The PMI™ registered 55.3 in February, down slightly from 55.5 in January. The advance in production was attributable to greater client demand. New business expanded at a faster pace, while input prices increased at the fastest pace since December 2012.
  • The Institute for Supply Management’s Report On Business® reported similar results as Markit’s submission. The ISM® Purchasing Managers’ Index registered 60.8% in February, an increase of 1.7 percentage points from the January reading. However, ISM® respondents reported a slight decrease in new orders and production. Employment increased substantially, as did prices.
  • New home sales fell 7.8% in January and 1.0% below their pace from a year ago. The median sales price of new homes sold in January was $323,000. The average sales price was $382,700. The seasonally adjusted estimate of new houses for sale at the end of January was 301,000. This represents a supply of 6.1 months at the current sales rate. While new home sales were soft in January, inventory increased 10.9% and the average sales price fell 3.1% — factors which should help spur sales in February.
  • Orders for long-lasting products (durable goods) slipped in January, according to the latest report from the Census Bureau. New orders decreased $9.2 billion, or 3.7%, for the month following two consecutive monthly increases. Unfilled orders, down following four consecutive monthly increases, decreased $3.1 billion, or 0.3%, to $1,140.9 billion. On the plus side of the report, both shipments ($0.6 billion, or 0.2%) and inventories ($1.3 billion, or 0.3%) increased in January over December.
  • The advance report on international trade in goods saw the deficit increase by $2.1 billion in January over December. Exports of goods for January were $133.9 billion, $3.1 billion less than December exports. Imports of goods for January were $208.3 billion, $0.9 billion less than December imports. Wholesale inventories increased 0.7%, while retail inventories advanced 0.8%.
  • The Conference Board Consumer Confidence Index® increased in February, following a modest increase in January. Coming in at 130.8, this is the highest level since November 2000. According to the report, “despite the recent stock market volatility, consumers expressed greater optimism about short-term prospects for business and labor market conditions, as well as their financial prospects.”
  • In the week ended February 24, there were 210,000 initial claims for unemployment insurance, a decrease of 10,000 from the previous week’s level, which was revised down by 2,000. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. The advance insured unemployment rate inched up to 1.4% for the week ended February 17. The advance number of those receiving unemployment insurance benefits during the week ended February 17 was 1,931,000, an increase of 57,000 from the prior week’s level, which was revised down by 1,000.

Eye on the Week Ahead

The important monthly employment report for February is out this week. Pay close attention to wage appreciation as another sign of building inflationary pressure. Also, the international trade report for January is out. It is expected to reveal an expanding goods and services trade deficit.

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Monthly Market Review – February 2018

The Markets (as of market close February 28, 2018)

Despite some positive economic signs, rising consumer confidence, and favorable corporate earnings reports, February marked the end of the 10-month winning streak for the benchmark indexes listed here. Concerns over rising inflation and interest rates triggered a notable sell-off early in the month and pushed volatility to the forefront. Although the indexes listed here recovered much of their early February losses to close the month ahead of their 2017 closing values (with the exception of the Russell 2000), stocks did not maintain the pace set last year into January. New Fed chair Jerome Powell’s bullish assessment of the economy last week pushed the yields on 10-year Treasuries to their highest rates in several years (bond yields rise as prices fall), giving investors more reason to believe multiple interest rate hikes are in the offing for 2018.

The month started slowly as the Dow dropped over 4.0%, while the Nasdaq, S&P 500, Russell 2000, and Global Dow each fell over 3.0%. Despite a partial recovery mid-month, it was not enough to push stocks past their January closing values. The Global Dow and the Dow each plummeted more than 4.0% month-over-month, followed by the Russell 2000 and the S&P 500. The Nasdaq lost almost 2.0%, yet remained far ahead of the remaining listed indexes year-to-date. Overall, February was the worst month for the large caps of the Dow and S&P 500 since January 2016.

By the close of trading on February 28, the price of crude oil (WTI) was $61.55 per barrel, down from the January 31 price of $64.77 per barrel. The national average retail regular gasoline price was $2.548 per gallon on February 26, down from the January 29, 2017, selling price of $2.607 but $0.234 more than a year ago. The price of gold decreased by the end of February, closing at $1,319.40 on the last trading day of the month, down from its price of $1,348.50 on January 31, 2017.

Market/Index 2017 Close Prior Month As of February 28 Month Change YTD Change
DJIA 24719.22 26149.39 25029.20 -4.28% 1.25%
NASDAQ 6903.39 7411.48 7273.01 -1.87% 5.35%
S&P 500 2673.61 2823.81 2713.83 -3.89% 1.50%
Russell 2000 1535.51 1574.98 1512.45 -3.97% -1.50%
Global Dow 3085.41 3265.63 3122.28 -4.39% 1.19%
Fed. Funds 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.70% 2.86% 16 bps 45 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Month’s Economic News

  • Employment: Total employment rose by 200,000 in January following December’s upwardly revised total of 160,000. Employment gains occurred in health care, construction, food services and drinking places, and manufacturing. The unemployment rate remained at 4.1%. The number of unemployed persons marginally increased from 6.576 million to 6.684 million. The labor participation rate remained unchanged at 62.7%. The employment-population ratio was unchanged at 60.1% in January. The average workweek for all employees declined by 0.2 hour to 34.3 hours in January. Average hourly earnings increased by $0.09 to $26.74, following an $0.11 gain in December. Over the year, average hourly earnings have risen $0.75, or 2.9%.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in February. The next meeting, the first under new chair Jerome Powell, is scheduled for March 20-21.
  • GDP/budget: The second estimate of the fourth-quarter gross domestic product showed expansion at an annual rate of 2.5%, according to the Bureau of Economic Analysis. The third-quarter GDP grew at an annualized rate of 3.2%. Consumer spending rose 3.8%, with notable increases in durable goods spending (13.8%). As to the government’s budget, January’s deficit surged to $49.2 billion, compared to December’s deficit of $23.2 billion. The fiscal 2018 deficit (which began in October 2017) is $175.718 billion — an increase of $17.14 billion, or 9.6%, above the deficit over the same period last year.
  • Inflation/consumer spending: Inflationary pressures continued to show upward momentum in January. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) ticked up 0.4% for January following a December gain of 0.1%. The core PCE price index (excluding energy and food) jumped ahead 0.3% in January. Personal (pre-tax) income increased 0.4% and disposable personal (after-tax) income climbed 0.9% over the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) climbed 0.2% in January after jumping 0.4% the prior month.
  • The Consumer Price Index, which rose 0.2% in December, climbed 0.5% in January. Over the last 12 months ended in January, consumer prices are up 2.1%, a mark that hits the Fed’s 2.0% target for inflation. Core prices, which exclude food and energy, increased 0.3% in January, and are up 1.8% for the year.
  • The Producer Price Index showed the prices companies receive for goods and services also jumped 0.4% in January following no gain in December. Year-over-year, producer prices have increased 2.7%. Prices less food and energy increased 0.4% for the month and are up 2.5% over the last 12 months.
  • Housing: Home sales continued to recede during the winter. Total existing-home sales dropped 3.2% in January after falling 3.6% the prior month. Year-over-year, existing home sales are down 4.8%. The January median price for existing homes was $240,500, which is 2.6% lower than the December 2017 price of $246,800. What may help spur sales is continuing inventory expansion for existing homes, which rose 4.1% in January, representing a 3.4-month supply. The Census Bureau’s latest report reveals sales of new single-family homes also fell in January, declining 7.8% following a 9.3% drop in December. The median sales price of new houses sold in January was $323,000 ($335,400 in December). The average sales price was $382,700 ($398,900 in December). There were 301,000 houses for sale at the end of January, which represents a supply of 6.1 months at the current sales rate.
  • Manufacturing: Industrial production edged down a bit in January, decreasing 0.1% compared to a downward-revised 0.4% increase in December. Manufacturing output was unchanged in January for a second consecutive month; the index has increased 1.8% over the past 12 months. Capacity utilization for manufacturing was also unchanged in January, coming in at 76.2%, a rate that is 2.1 percentage points below its long-run average. New orders for manufactured durable goods fell 3.7% in January following a 2.6% revised December gain. For the year, new durable goods orders are up 8.9%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap increased in January from December, rising from $72.3 billion to $74.4 billion. Exports of goods for January fell 2.2% following December’s 2.5% gain. Imports of goods dropped 0.5% after rising 2.9% in December. Still, total imports ($208.3 billion) far exceeded exports ($133.9 billion). Prices for both imported and exported goods and services advanced in January. Import prices rose only 1.0% for the month, while export prices increased 0.8%. For the year, import prices climbed 3.6%, while export prices jumped 3.4%.
  • International markets: The potential for rising inflation isn’t just affecting U.S. stocks, but is being felt in other major world markets as well. The Stoxx Europe 600 Index dropped about 3.0% for February, as did the Nikkei 225 Index. While the European Central Bank has maintained its programs of quantitative easing, some hawkish officials are pushing for an end to the easing bias. China’s manufacturing output slowed in February, dragging stocks down in the aftermath. Strengthening of the yuan has curtailed China’s export growth, which also likely contributed to the manufacturing slowdown.
  • Consumer sentiment: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, increased significantly in February after a modest increase in January. The index increased to 130.8, up from 124.3 in January. According to the report, consumer expectations in the economy reached a height not seen since November 2000.

Eye on the Month Ahead

Market volatility is likely to continue into March, at least until the Federal Open Market Committee meets later in the month. If the Committee maintains interest rates at their current level in March, investor fears of rising inflation and interest rates may subside, which should boost stocks.

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